Here's the roundtable discussion from Barron's. Paul Wick is the manager of the Seligman Communications Fund.
Q: Paul, give us some stock tips.
Wick: My first choice is the Learning Co It plays into our thinking that 1999
will be a better year for consumer computing than corporate computing. As
PC prices fall, they've become more common in Middle America. The
company benefits from being the leading education- and reference-software
company in the U.S. They've got aggressive management, which has turned
around a company that a few years ago was saddled with lots of debt from
some acquisitions made at admittedly high prices.
Q: What do they sell?
Wick: The company is an agglomeration of some of the best retail software
brands. Reader Rabbit, Sesame Street, Princeton Review. Over the summer,
they bought Broderbund incredibly cheaply -- pulling out balance-sheet cash,
they paid just 0.8 times sales. That's cheap for a company with some good
franchises of its own, like Dr. Seuss, Carmen Sandiego and the Berenstain
Bears. On the reference side, they've got National Geographic and
Compton's Interactive. They also have a substantial presence in productivity
applications Print Master, Calendar Creator and Family Tree Creator. The
company has a strong distribution network. They do direct mail. They sell
directly to schools. And they're the largest player in terms of shelf space at
retail.
Q: Sounds impressive.
Wick: And they're going to wring a lot of cost savings out of Broderbund.
They plan to fire about 80% of Broderbund's employees. Learning Co. has
operating profit margins in the neighborhood of 30%, which is among the best
in the software industry. The valuation is pretty attractive for a company
growing about 20% a year. The stock is around $25. They should earn about
$1.50 this year and $1.80-plus next year. That's 15 or 16 times earnings for a
great franchise with good cash flow. |
